The Navio Grouphttps://thenaviogroup.com
Lead. Transform. Grow.Thu, 15 Nov 2018 13:25:17 +0000en-UShourly1https://i0.wp.com/thenaviogroup.com/wp-content/uploads/2018/01/icon-color-transparent-rgb.jpg?fit=32%2C32&ssl=1The Navio Grouphttps://thenaviogroup.com
323291628294Recap from Grocery Shophttps://thenaviogroup.com/2018/11/06/recap-from-grocery-shop/
https://thenaviogroup.com/2018/11/06/recap-from-grocery-shop/#respondTue, 06 Nov 2018 19:07:57 +0000https://thenaviogroup.com/?p=1684Read More Recap from Grocery Shop]]>One quote from the conference that stayed with us came from Wayne Duan, the VP of eCommerce for Constellation Brands: “Brands must not fall for FOMO and instead embrace JOMO.” While “FOMO” translates to the fear of missing out, “JOMO” refers to the joy of missing out. It resonated because amidst the many distractions Las Vegas has to offer, we had chosen to embrace the joy of missing out on all the glitz, glamour, and vices Las Vegas has to offer.

When deciding whether to prioritize a brand initiative, Duan employs the six (S) frameworks.

Does it SOLVE a consumer problem?We all know there are great technology idea emerging, but do they solve a problem for our customer and just an importantly, does it create value for them.

Does it beat the STATUS quo?Cabs get you from point A to point B, and sit out front of hotels waiting for you, but many want to ride in Lyft because of their branding.

Is it STRATEGIC? It doesn’t make sense for Louis Vuitton, or Gucci to offer coupons but it aligns well with many other brands.

How will SUCCESS be measured?Do we have more metrics than the traditional, and limited, KPIs and revenue statistics.

Is it SCALABLE across all brands and chains?Sure, the initiative is strategic and cost-effective, but scaling is usually costlier and more difficult.

And lastly, is it SUSTAINABLE?There will always be flavor of the week temptations but having the discipline to scale things and sustain them long-term is difficult.

Just as Duan employs the method to his brands at Constellation, we employed it in deciding to stay on my hotel balcony. Our view of the strip and fountain was certainly more appealing than following the masses and engaging in slots, shows, and second-hand smoke. Who’s to say that view, the Bordeaux, and the Cohibas we shared weren’t worth more than getting out on the strip to gamble and party? The consumer.

Brands need to embrace the joy of missing out however, they must not ignore keys to success and one of these keys is the digitization of commerce. Brands must utilize eCommerce not as a silo function but an organizational muscle. At the same time, brands need to be weary of technical chauvinism. With all of the dynamics that come with digitization, brands need to employ more consumer empathy and transparency, so customers understand what their data is being used for.

The conference highlighted the need for retailers to marry their “bricks to clicks”, as referred to by several speakers. Customers are channel agnostic and expect a seamless experience. The path to conversion is different as consumers bounce back and forth from online and offline channels. The marriage of physical storefronts and online channels will increase the conversation and frequency rate of customers purchasing because it enhances and further eases the seamless shopping experience. Essentially, brands need an omni-channel platform that is centered on the customer, not simply the “multi-channel” approach of the past.

Nearly every brand says they are customer-centric however, one issue consistent across most companies is that they always want to sell to customers right now. Companies must understand that customers all have different trip lengths, and each engage in different channels, and as a result, companies need to move beyond only highlighting cheap goods to drive a quick sale. Customer centric means figuring out how to serve customers best, and not just trying to bend their will to their business.

Another point made clear is that when it comes to the digitization of their businesses, transparency is key. A prime example of a company that devours information, but is clear with its usage, is Stich Fix. Right up front, they let the customer know that the reason for all of their body metrics and tastes is to contour the clothing to them. Stich Fix understands that customers want access to everything they have to offer however they don’t want to take a tour of the fulfillment center. The small pieces of information collected help Stich Fix make the shopping experience better.

In sum, a few key learnings:

Going forward CPG’s and retailers mustn’t be tempted by FOMO and instead enjoy missing out. By employing the six (S) frameworks, businesses can best assess whether an initiative adds value to their customers before following other industry players.

By marrying their bricks to their clicks, CPG’s and retailers can enhance the shopping experience for the customer and increase the frequency and conversion rate.

Companies must increasingly embrace digitization with transparency as a key point to create seamless omni channel experiences for today’s agnostic consumers.

All in all, Groceryshop was an insightful experience. The conference brought together many of the retail industry’s best and brightest newcomers as well as legacy brands and CPGs. With ecommerce exploding in the grocery sector it will be interesting to see whether some of these innovative concepts and themes come to fruition in the years to the come. The main message we took away was a seamless multi-channel shopping experience is no longer a luxury, but a necessity to succeed and be competitive in today’s market – or as you might say in Vegas, table stakes.

]]>https://thenaviogroup.com/2018/11/06/recap-from-grocery-shop/feed/01684Three observations from Day 2 of Grocery Shophttps://thenaviogroup.com/2018/10/31/three-observations-from-day-2-of-grocery-shop/
https://thenaviogroup.com/2018/10/31/three-observations-from-day-2-of-grocery-shop/#respondWed, 31 Oct 2018 14:59:14 +0000https://thenaviogroup.com/?p=1656Read More Three observations from Day 2 of Grocery Shop]]>Brands must prioritize their digital initiatives. In a world where everyone has FOMO, the ‘Fear of missing out,’ brands must embrace JOMO, the ‘Joy of missing out.’

Falling into the fear of missing out is a temptation for brands today and they must show discipline to focus on what their customers want instead of trying to do everything. To that end, before brands jump on the bandwagon and embark on a new digital project, they should ask themselves five “S” framework questions, as explained by Wayne Duan (VP of Ecommerce) of Constellation Brands:

Does this solve a problem?

Does it exceed the status quo?

Is this a strategic move?

How can we measure success using more metrics than KPI and revenue?

Can you scale across brands and chains?

Changing the language: Private Labels are Private Brands

We heard a line that neatly sums up how the world of grocery has changed: “My grandparents bought supplies, my parents bought products, and millennials buy attributes.” As a result, retailers are feeling confident that consumers will purchase their brands just as readily as from a well-known CPG or manufacturer. While venturing into private brands may be a giant leap for many retailers, it often pays dividends. Another tailwind retailers are coasting on is the consumer’s desire for transparency. Retailers managing private brands are forced to become the retailer, the marketer, the innovator, the brand manager, and the sourcing agent. As a result, retailers can give a level of consumer transparency that most CPGs or manufacturers shudder at providing.

CPGs and Manufacturers are accelerating their efforts to go directly to the consumer

As we wrote yesterday, the retail world is no longer attempting to create bridges into regional markets; they are building communication lines directly to the consumer. However, as Julie Bowerman (SVP of Ecommerce & Digital Engagement) from Hain Celestial pointed out, this does not mean uploading products onto Amazon and then throwing up the “Mission Accomplished” banner. Creating a sustainable D2C channel means asking a few key questions:

How will you recruit and retain consumers continuously to achieve scale?

It is clear the consumer is willing to buy directly from brands, however for CPGs and manufacturers to enter this world, they must do so whole-heartedly and not just dip their toe in the water.

]]>https://thenaviogroup.com/2018/10/31/three-observations-from-day-2-of-grocery-shop/feed/01656Three observations from Day 1 of Grocery Shophttps://thenaviogroup.com/2018/10/30/three-observations-from-day-1-of-grocery-shop/
https://thenaviogroup.com/2018/10/30/three-observations-from-day-1-of-grocery-shop/#respondTue, 30 Oct 2018 15:50:47 +0000https://thenaviogroup.com/?p=1651Read More Three observations from Day 1 of Grocery Shop]]>Brands and retailers are moving convenience beyond just availability and usability

In a world in which consumers can have anything delivered to their house or office within hours, brands and retailers whose value-add was “convenient locations” or “ready to eat” packaging, need to evolve. One idea we heard mentioned several times was creating convenience by lessening the cognitive load required to make a purchasing decision. By understanding the customer intimately and knowing the critical variables in their path to purchase, companies can bubble these items to the surface. For retailers, this can manifest itself as a curated discovery process based on past purchases as well as offering comparisons charts on item attributes which mean the most to the customer. For CPGs and manufacturers, this can be simpler packaging and intentionally showcasing the aspects of the product which mean most to their customers.

Marketing is no longer about connecting to a market – it is about connecting with an individual

Many speakers addressed how their businesses have shifted their marketing dollars and focus to individuals, rather than a specific region, city or even community. Coca-Cola (small, relatively unknown, beverage manufacturer) explained that their “Share a Coke” campaign, with names written on the bottle, was explicitly designed to create a personal connection; Care/of (start-up, online vitamin company) leverages their app to tailor educational content to the customer, and as a result, the customer shares more data; Albertsons (national grocer) is creating an online marketplace aimed at placing new and upcoming brands in front of individuals rather than attempting to market new brands regionally. Customers, now more than ever before, have direct lines of communication with companies via Twitter, Facebook and as a result, companies are starting to forge direct lines of communication back.

Customers crave more than just an ecommerce world and this is a massive opportunity for omnichannel retailers.

There is currently more information compiled on the internet than ever before, and our society has never been more connected to it through our phones, computers and other devices. As a result, there is a perception that if we have a question – no matter what it is – we should simply “look it up.” However, consumers are indicating that they want to speak with someone who is an expert and can pare information down, rather than having to become the expert themselves. Companies can seize the opportunity to help navigate their customers through this information and not only become the place of purchase but also a destination for knowledge, in both online and their brick & mortar locations. Home Depot and REI, to name just two retailers, have done this for years and the opportunity to do so in grocery is “ripe” for the picking.

L Brand’s Victoria’s Secret is not having a good year. Their stock has declined considerably as have same-store-sales. A hidden cause? The brand’s well known style of provocative advertising falls tone deaf in the era of women’s empowerment. The past two years have re-shaped the political and social environment in the United States. The many former A-list Hollywood actors outed for their inappropriate sexual behavior led to the birth of the #MeToo and #TimesUp social media movements. All of these events have led women to question sex, beauty, and glamour; posing tremendous ramifications for businesses based on these pillars. Parent company L Brand’s calls Victoria’s Secret “One of the most powerful, sexy and glamorous brands in the world” but leadership and the Board of Directors has yet to realize this is no longer a well perceived look. As Contributing Editor of Retail Dive, Daphne Howard, puts it “The brand simply hasn’t embraced the new reality –sexy is out, comfort and/or performance are in.”

Empower Women by Making them Feel Sexy in their Own Bodies

In order to succeed in the intimates industry, Victoria’s Secret must adapt to the modern female consumer. Modern does not refer to the wearing of casual clothing with the word PINK emblazoned on one’s behind as evidenced by the brands Buzz Score dropping 25% in the past two years. Much like CEO Leslie Wexner did in 1982, the company must look at the changing way women view and perceive sex, and, meet their needs. That is a problem because they currently are going the route of Mike Jeffries, Abercrombie & Fitch’s former CEOe. Like Abercrombie & Fitch, Victoria’s Secret became so large and so profitable that they never saw the need to adapt. It’s hard to believe, the brand once revolutionized how women perceive intimates and made lingerie an everyday necessity instead of a one-off special purchase. In fact, Wexner was the man that once “made sexy mainstream, that was his genius.” Today’s female consumer however perceives image in a very different way than the women of the 20th century who bought into the media’s image of beauty. By repositioning the brand as inclusive and empowering the company can better equate their products with today’s modern women.

The good news: all of this is possible for Victoria’s Secret to implement. Leslie Wexner just has to take a page from his own 1980s playbook.

Reposition ‘Again’ to Women

What is so striking about Victoria’s Secret’s situation is they were in a similar rough spot when Leslie Wexner purchased the company and ultimately saved it from bankruptcy. Prior to Wexner’s acquisition in 1982, the retailer was out of touch with their end consumer. The retailer was marketing to men who for the first time in history felt comfortable buying intimates for women. However, Wexner realized that they could sell much more product if the brand made women feel comfortable buying lingerie. This strategy and approach led Victoria’s Secret to control 1/3 of the intimate apparel market by 2006.

Much like Philip Morris’s strategy for women and cigarettes with their “You’ve Come a Long Way Baby” advertising campaign for Virginia Slims, Victoria’s Secret aimed to erase the taboo associated with women purchasing their own intimates. Packaging intimates in European style packs, with fake European addresses, propelled the brand to stardom. Wexner’s decision to gear the brand towards women saved the brand from bankruptcy and propelled it to the top of the industry. Between 1987 and 1990, Victoria’s Secret mail order catalogue business quadrupled. Then in the year 1990 alone, the business quadrupled.

By simply looking at the picture above, one can imply that Victoria’s Secret’s messaging is out of line with the current views on women’s empowerment and inclusivity. With the launch of the Victoria’s Secret Fashion Show in 1995, the brands core marketing focus, the brand slowly sold itself off to the Angel’s. While the Angel’s average bra size is over six sizes smaller than the average size sold in America, their other body metrics are even more disproportionately off from the average American woman. Women today want larger sizes, and Victoria’s Secret must embrace and heed the customer’s voice by incorporating larger and more comfortable performance bras in their offering. Instead of peddling push up bras and the Miracle Bra of the 1990s the company should focus on growing product categories like padded bras, bralettes, and sports bras. It does not take a rocket scientist to see that this strategy is working for their competitor, Aerie.

Disrupt the Industry: Again

Leslie Wexner is a visionary and industry disruptor. By returning to his original strategy of listening to the end user, women, Victoria’s Secret will increase revenues. The retailer can start by carrying more comfortable bras, bringing in larger sizes, and alleviating the plus size stigma by having those sizes in-stock. As we have seen in other cases, this will increase their Buzz Score as more customers share their positive experiences. It is always good policy to listen to the customers and may very well slow, or stop, the rate of same store sales losses. Just like Wexner empowered women by making them feel sexy and comfortable in lingerie, he must again empower women by making them feel comfortable in their own bodies, not just in the image of Angel’s. In fact, he can toss the idea to the Heavens for the brands’ sake.

]]>1453The Breakuphttps://thenaviogroup.com/2018/06/12/the-breakup/
Tue, 12 Jun 2018 13:37:46 +0000https://thenaviogroup.com/?p=1399Read More The Breakup]]>Over the last 30 years, some of the largest Consumer Packed Goods (CPGs) and brands built powerful businesses that outpaced the rest of the market. Pursuing constant innovation, expanding gross margins, and growing in emerging markets, large CPGs outperformed the S&P 500 index by almost 15% from 1985 through the Great Recession of 2009. CPGs built strong brands that resonated with consumers and products that were widely distributed through thriving retail channels for several decades. As the Q1 2018 earnings call season wraps up however, the rules of the game changed almost overnight after the Great Recession and the recent results of most CPGs stand in stark contrast to overall market and economic performance. What caused the precipitous decline of these once iconic companies and can they turn it around? We believe the problem lies with the legacy wholesale distribution model and dependency on traditional retailers.

The growth of legacy CPG brands since the 1980s coincided with store proliferation across the United States as trusted retail partners such as Walmart, Target, and Costco invaded every corner of the country. Business was great for CPGs as their products were in every new store and every new shelf in the country. They focused on heavily marketing their products to retailers to gain and maintain shelf-space as well as customers to create a loyal following. Boosted by the high barriers for new brands seeking to get into retail, CPGs were able to grow as retailers grew. As a former CPG executive told us, “Brands thought they had more leverage than the retailers” — due to their brand resonance.

Then the Great Recession hit.

Shoppers were migrating online and the country was deemed over-retailed with almost 23.6 sq. ft. of retail space per capita. Revenue growth for trusted retail partners began to stall since they could no longer employ the same growth playbook: build it (new stores) and they will come.

“If you build it, they will come” – Field of Dreams(also, legacy retail model of expanding via stores)

In response to changing market dynamics and online competition, legacy retailers began to focus on increasing their profits as revenue growth slowed. They accomplished this in two ways: 1) taking more of the margin “pie” from their formerly trusted wholesale brands along with 2) expanding private label.

The one-two combination of taking away shelf-space (revenue for CPGs) via private label and then continuing to drive down pricing (margin erosion for brands) has left legacy CPGs battered and bruised. So, what now?

The Rebound Relationship (Amazon)

In response, many legacy CPGs have started chasing revenue growth with Amazon to make up the lost sales. As we wrote before, this is nothing more than short-term thinking — at best — given the potential implications of a voice-controlled future and Amazon’s private label surge. Amazon has continued to push further into private label as it now sells more than 70 of its own brands. It’s hard to conclude anything other than moving branded businesses aggressively onto Amazon will result in a poor ending for those brands. CPGs that continue to list more product on Amazon to chase short-term growth – using their brand strength to attract customers to Amazon – do so at their own peril. The customer data and insights that Amazon will gain because of the brands will eventually be turned against them, as seems to have happened to some ecommerce companies that host on Amazon Web Services.

For a corollary case study on what the outcome may look like, look no further than the relationship movie studios had with Netflix. In the early days, Studios were happy to license their content to Netflix to get incremental royalties from users streaming content online. For Netflix, this was a great way to offer more value to their customers and bring new customer to the platform as well as to have existing customers use the service with higher frequency. The dynamics changed, though, when Netflix began producing its own content and competing directly with the studios themselves. This is precisely the cautionary tale that CPGs should heed when evaluating a strategy with Amazon.

So, what can legacy CPGs do to shift the tides? We look forward to sharing insights from our work and research from growing brands in a subsequent post to identify how companies can evolve in this new world.

]]>1399The Good, the Bad and the Ugly (of retail)https://thenaviogroup.com/2018/05/30/the-good-the-bad-and-the-ugly-of-retail/
https://thenaviogroup.com/2018/05/30/the-good-the-bad-and-the-ugly-of-retail/#respondThu, 31 May 2018 03:56:17 +0000https://thenaviogroup.com/?p=1366The digital consumer is difficult to catch and moves quick in an unpredictable manner and often without notice. As a result, retailers attempt a wide variety of ways to both please their customers as well as their shareholders. In today’s article, we highlight three interesting trends which companies employ — with mixed results — as they strike the required balance.

The Good [for retailers] – Using data to ban excessive returns and “return” to the status quo

Omnichannel orders have long included free returns, however we now see an evolution taking place through data that seems to signal “free returns – for some customers.” An article published by the Wall Street Journal introduced consumers to a new world, which outlined Best Buy’s practice of “blacklisting” select customers who return items that are expensive to re-process and/or are items with high levels of theft and fraud. The program’s goal is to maintain a profitable customer base, which is at odds with a customer-friendly return policy. As explained by Tom Rittman, a marketing vice president at Appriss Inc., which owns the technology behind the program, “You could do things that are inside the posted rules, but if you are violating the intent of the rules, like every item you’re purchasing you’re using and then returning, then at a certain point in time you become not a profitable customer for that retailer.” The article points out that Amazon led the charge for free online returns and invested in partnerships (such as Kohl’s) to make the experience easier. Ironically, Amazon may be the next company to ban returns for certain customers and in some cases, shut down accounts. If Amazon, the “world’s most customer-centric company,” is willing to lose customers over returns it may indicate data and analytics capabilities have reached a point where companies are once again at the helm.

Best Buy receipt (image courtesy of Yelp!)

2. The Bad – “Random acts of digital”

As consumers come to rely more on their digital devices to shop, retailers and CPGs match their customers’ desire for a digital experience through increased technological capabilities. In fact, retailers are forecasted to spend an incremental 3% on technology to grow their customer experience and omnichannel offerings. While there is little doubt technology is vital to a businesses’ survival (especially in retail), the purchase of new systems does not automatically equate to a digital experience. A sound strategy must be in place to take full advantage of the technology’s value. However, we often see companies buy technology for the sake of buying. To begin with, there must be plan for how the technology will lead the company towards its greater vision and goals. It’s easier said than done however, there must be an answer to the question: “how does this technology further our corporate goals and what is its broadest application?” Then, companies must operationalize their new purchase and spread the benefits across as many departments as possible. Often this does not happen and the sum becomes “random acts of digital.” To illustrate this idea, take Bed Bath and Beyond. In 2015, the company launched six major technology investments (ranging from POS systems to analytics to supply chain) that gobbled up huge portions of Bed Bath and Beyond’s CapEx spend. Now, several years later, there are no significant gains nor a clear picture of the impact on the business. While their CEO, Steven Temares, has committed the company to a “customer service transformation” project, there is little to tie together all the investments made thus far to a broader strategy.

Retailers are spending more but need a vision and operational plan to have the organization adopt the technology (image from 2018 RIS/Gartner Retail Technology Study)

The rise of ecommerce snuck up on many companies. Target famously used Amazon as their ecommerce platform until 2011, deeming proprietorship of their digital platform an unworthy investment up until then. As ecommerce grew, however, brick and mortar retailers felt the pressure to show digital sales and some decided to grow through acquisition: TheCompanyStore.com went to Home Depot, HauteLook.com to Nordstrom and Chewy.com to PetSmart, to name a few examples. In all cases, significant dollars were spent to drive an increase in ecommerce IQ, acquisition of customers, and the IP of unique go-to-market strategies. However, investments in digital cannot come at the expense of the brick-and-mortar side of the business, which drives the majority of the revenue.

To illustrate this point, Home Depot and Nordstrom understand this concept. Home Depot has heralded an investment of $4.5B over the next three years in its stores, associates, supply chain and delivery capability. Nordstrom recently rolled out a brand new store in Midtown Manhattan to provide an unrivaled customer experience. PetSmart, however, has used their ecommerce acquisition as a store performance stop-gap rather than a launch pad for innovation. In the most recent quarter, Chewy.com has grown 18% (to $650M) while losses at PetSmart widened to -$61M from -$56M during the same period. Much of this is attributed to new stores (60 in 2018 on top of 100 in the past two years) however the -3.8% in comparable-store sales highlights the neglectful management. As long as brick and mortar accounts for the vast majority of retail spend, smoothing over in-store numbers with ecommerce dollars must be recognized as false advertising.

Brick and mortar demands attention, despite ecommerce growth

]]>

https://thenaviogroup.com/2018/05/30/the-good-the-bad-and-the-ugly-of-retail/feed/01366The gift that always gives: customer-centricityhttps://thenaviogroup.com/2018/05/21/the-gift-that-always-gives-customer-centricity/
https://thenaviogroup.com/2018/05/21/the-gift-that-always-gives-customer-centricity/#respondTue, 22 May 2018 04:55:01 +0000https://thenaviogroup.com/?p=1323Many companies are actively seeking to understand their customers to design and deliver an enhanced customer experience. With 74% of surveyed retailers and suppliers stating that “understanding consumer preferences” is critical to their strategy, it appears that creating better customer experiences is catching on and with good reason. The number of interactions with customers is increasing through new, digital devices which means if a company is not expanding its customer experience into the digital world, its competitors are doing so. While a good customer experience does not immediately translate to the bottom line, it does foster the gift that keeps on giving: loyal customers. There is little doubt that as the digital revolution continues and customers crave more from their interactions with companies, a winning strategy will hinge on good customer experience.

Customer acquisition often costs 6-7 times more than retaining a customer and repeat customers spend on average 33% more than new customers. Additionally, 86% of consumers will pay up to 25% more for better experience, leading many companies to view providing a strong customer experience as a no-brainer. So how does a company begin to better understand the customer and create an improved experience? The answer is simple but exceedingly difficult to implement: transform into a customer-centric company.

The central tenet of a customer-centric company is that every member of the organization focuses on providing value to the customer. As a result, understanding how companies deliver value is key. While there are many ways, we often see an emphasis either on (1) products or (2) experiences.

Companies deliver value through products and experiences

On the one hand, you have a company like Apple, which creates products so in-tune with customers that camp towns spawn every time a new device is released. On the other hand, you have experiences delivered by the likes of The Home Depot which engages devotees of the brand every time an event takes place at their stores (often weekly at their 2,200+ locations). Both companies are customer-centric because, at their core, they provide outsized customer value but do so in two distinct ways. While companies typically emphasize delivering value through either their products or experiences they have opportunities to do both. For instance, at Amazon, their product (Prime) provides value through speedy delivery, while their experience (customer support/app/desktop site) provides value through convenience. As a rule of thumb, the customer pays for the value of a product and everything else is experiential value.

Kids Workshop event at The Home Depot

Once a company understands how it wishes to provide value to the customer, the first step is to align the organization via a vision. This starts with a mission statement to guide objectives and an internal culture that reinforces the vision. Amazon strives to be “Earth’s most customer-centric company” while Home Depot lists “providing the highest level of service” above all other goals of the company (including assortment and price). In contrast, PepsiCo’s mission statement does not mention customers once in their mission statement and places seeking “to produce financial rewards to investors” as their top goal (above employees, partners, and communities). Actions certainly speak louder than words, however placing the customer above all else in a mission statement produces a framework for future decisions.

Amazon uses recruitment ads to reinforce its mission statement

Next, comes the hard part: walking the walk. There are many facets to becoming a customer-centric company. However, there are three we believe are critical:

Seek to understand the perspective of the customer

A company undergoing a transformation to becoming customer-centric must infuse the customer’s perspective throughout every business function. Often companies either do not attempt to find out what the customer is thinking or, if they do, they fail to act on it. This disconnect creates a gulf between the value a company believes they are providing and the value customers perceive. In a survey of customers of 362 companies, 8% described their experiences as “superior” however 80% of the companies surveyed believe that the experience provided was indeed superior. There are three significant steps in understanding the customer’s perspective: 1) gathering the customers’ perspective, 2) distributing insights across the company and 3) acting on the data. Companies are tackling this problem in a variety of ways with three that stuck out in our research.

To ensure customer insights make it across the entire company, Amazon appoints “Customer Experience Bar Raisers” to facilitate

When choosing investments in new technologies, Cisco defers its choice until key customers have registered their reactions – then commit themselves as soon as possible

Empower employees at all levels to do what is right for the customer

What better way to support a customer-centric mission statement than rewarding employees for doing just that? A large part of becoming customer-centric is taking the long view of customer relationships. Simply put, it is to build trust and loyalty in every transaction, regardless of profit and loss generated. Legend has it, corroborated by both Erik and Blake Nordstrom (co-CEOs at Nordstrom), a man once rolled in tires he wanted to return into a store and demanded a full refund – even though Nordstrom had never sold tires. The store clerk accepted them on the spot, despite not seeking or receiving his manager’s approval. Instead of being reprimanded for losing the company money, the company celebrated his actions. As Nordstrom himself put it years later, “He used great judgment, he treated the customer like he would like to be treated.” To be sure, helpful and customer-focused employees are a winning strategy. With 73% of consumers saying that friendly employees make them “fall in love with a brand,” ensuring the front line employees know their decisions to help the customer, even at a loss, will be backed up in full – right up to the CEO – is important.

Take care of employees to take care of customers

Happy and engaged employees translate to happier customers, which is why the most customer-centric companies have strong cultures and go above and beyond for their employees. A relative newcomer, Warby Parker, has a strong customer-centric culture and product, and to keep it alive, has built an entire team responsible for promoting the company’s culture. The aim is to contribute to the employees’ well-being, as well as fostering a platform to collaborate and share knowledge. By building a relationship of trust with its employees, a company leads by example. Additionally, by retaining employees, a company can drive culture even further. Through unrivaled benefits and pay across the entire company, Costco aims to keep its team members for a long time. In a culture built around the customer, having continuity is important and Costco’s retention rate for employees who have been there one year is 94%.

While “customer-centric” and “transformation” have become buzz-words thrown out during investor meeting (see our article on transformation here), it takes a significant amount of introspection to understand how a company can provide value. If client value is not present in a company’s DNA from its inception (i.e. Amazon, Nordstrom, Warby Parker), the challenges cannot simply be addressed via more surveys, KPIs or technology. An organization can start by understanding customer value and then setting a corporate vision centered on the customer. Reinventing the culture to seek the customer perspective rewards customer-centric behavior and empowers employees to work on behalf of the company to elevate the experience.

]]>https://thenaviogroup.com/2018/05/21/the-gift-that-always-gives-customer-centricity/feed/01323The apprehension of the category killerhttps://thenaviogroup.com/2018/05/14/the-apprehension-of-the-category-killer/
https://thenaviogroup.com/2018/05/14/the-apprehension-of-the-category-killer/#respondTue, 15 May 2018 03:11:06 +0000https://thenaviogroup.com/?p=1312“The report of my death has been grossly exaggerated” quipped Mark Twain, in a now widely-repeated legend (with several variations), responding to a young reporter’s question about the status of his health. Perhaps a similar comment about the retail industry as whole applies today, given the thousands of store closings and dozens of bankruptcies over the last few years which spawned the overexaggerated “Retail Apocalypse” narrative. However, a principal section of retail that has fallen prey to market forces is the “category killer.” Once feared for their ability to specialize in a merchandise segment and dominate a category through discounting and convenience, many category killers (Toys R’Us, Barnes & Noble, Bed Bath and Beyond, to name a few) have fallen or been left behind. In an age of endless aisle, hyper-convenience, and so many upstart brands, the market needs less apprehension and more definitive category leadership from these specialists.

An easy question aimed at gauging a category or vertical’s public sentiment is to ask: will it be more or less successful in 3 years? Followed by a subsequent: why or why not?

Using this framework, we took the most pre-eminent ones – Best Buy, Staples, Barnes & Noble, and Bed Bath & Beyond – and asked: will they be better off in three years? From our point of view, it’s hard to envision a positive scenario where for the totality of the companies the next three years sun shines positively on them. So, why the continuous decline and what can be done about it?

“The calls are coming from inside the house”

The decline of the category killers has centered on a combination of (1) price transparency through digitization, (2) changing consumer definition of “convenience,” and – too often – (3) suspect management decisions. Ironically, the inverse of all three – competitive pricing, localized convenience, and great leadership — is what helped them ascend to prominence in the 2000s. In many ways, this is a classic instance of the old movie idiom “the calls are coming from inside the house” whereby the threats to the category killers come from forces within their four walls.

The proverbial veil on pricing was pierced the moment a customer could search products online. This insight is quite pedestrian, however, it is worth highlighting as the central catalyst bringing about a period of decline. Pricing cannot be an obstacle to customer purchases as Hubert Joly and Best Buy proved early in their turnaround. Pricing parity (along with price matching), coupled with an emphasis on convenience through online ordering for widely distributed product, is now a baseline expectation for customers.

Category killers grew because of their specialization and their ability to carry more products in-store than their competitors. It was a very profitable model and one that drew customers. Today, retailers can no longer rely on having locations as close as possible to the customer to provide convenience, given the ease of online ordering. Amazon and other ecommerce competitors can carry all the products in a typical store (and more).

The combination of price transparency and shifting convenience occurred swiftly and left category killers in a reactionary position – one that many of the leaders failed to react to quick enough. Coupled with the great shifts, the category killers had leadership which failed to identify a compelling strategy. Former Best Buy CEO, Brian Dunn, was named the worst CEO in 2012 by Bloomberg and it was preceded by a cover story in the same publication depicting Best Buy as a “Big Box Zombie” leading up to Halloween 2012.

Bloomberg Business Week: October 22 – October 28, 2012

Barnes & Noble, a bookseller, launched a doomed foray into the tablet market with its Nook to go head-to-head with Amazon’s Kindle. It ended up losing over a $1B on this failed attempt. Suspect leadership decisions made in panic, and without a broader understanding of the historical shift, left category killers flat-footed and faltering. For many, suspect management decisions and an unwillingness to boldly re-think the business model may be the ultimate downfall. Leadership needs to re-think the legacy model that made these retailers so successful to become feared and respected yet again.

The Rehabilitation of the Category Killer

Imagine a world where most of a category’s products are purchased at Target, Amazon, or Wal-Mart. How do customers find new products in-person vs. being led to owned brands or large, established brands? Who will help provide a tailored customer experience? While this may seem like a dystopian retail novel, it is in fact the reality playing out today in the Toy category following the demise of Toys R’Us where the Big Three (Amazon, Target, and Walmart) will take up an estimated 80% share of the toy market in 2018.

Brands and consumers alike should want category killers to thrive more than ever before to keep the large generalists in check, introduce customers to products on the early side of the trend curve, and avoid a highly fragmented market where category purchases occur across many websites.

Today, perhaps, the term “category curator” could be more fitting as these companies should seek to leverage their merchandising chops to stand for new trends, brands, and products for customers. Who else would customers trust more than Bed Bath and Beyond to find the newest kitchen gadgets? Or innovative technology at Best Buy? Look no further than Whole Foods which rose to prominence by introducing small, local brands to customers. It worked to build a defensible position in a competitive market such as grocery. Yes, such a strategy entails dedicating floor space to less profitable and slower turning products and creates operational complexity. However, the process of discovering unique brands is important to young consumers and, better yet, difficult to replicate online due to the constraining nature of the search function. Long-tail items, balanced with core product at price parity, create a unique merchandising strategy that give customers a reason to come in-store and engage. Before anything else, the product in-store must be optimized to attract younger customers that seek newness.

WSJ: “America’s Retailers Have a New Target Customer: The 26-Year-Old Millennial”

Re-thinking the store experience

More than ever, re-thinking the store experience and redefining a successful store visit needs to be addressed considering how convenience is defined through digitization. No longer is a successful store visit just about basket size but it should be about the customer experience and engagement. Story-telling is a great way to showcase a brand or product and this requires engaged, well-trained staff to execute such a strategy. This exact need for experience and engagement is why Macy’s purchased Story and made their visionary CEO, Rachel Schechtman, their “Brand Experience Officer.”

As Bloomberg writer Virginia Postrel so eloquently summarized: “Now’s the Time for Big-Box Stores to Embrace the 19th Century.” Stores used to be the hub of social activity in communities and they certainly can be again with a shift in thinking on their purpose.

Category killers have the merchandising chops to execute experiences in-store to draw customers seeking to discover new products and brands. There is a way to transition existing floor space to create better experiences and shift fulfillment of common items to a convenience model via online purchasing. Imagine a Barnes & Noble that filled the Toys R’Us void and held regular book readings coupled with tie-ins to live character or visual imagery? How about a Bed Bath and Beyond that showcased some of their most popular kitchen utensils with demos from local or celebrity chefs? These are simple examples that re-think what it means to be a brick-and-mortar store but reflect the belief customer experience drives value over the long-run.

For example, a boutique brand that has placed a story-telling narrative at its core to drive customer affinity is Brunello Cucinelli. Since 1985, the namesake founder has spent untold sums restoring the town of Solomeo in Italy, buying the 14th century castle and surroundings, to provide his employees a comfortable environment which includes the production factory as well as cultural amenities such as a theater complex and a library.

The culture and story reflect the quality of the clothes crafted locally by hand. “Treating people well is at the core of everything, and fostering a beautiful culture is as important as churning out beautiful clothes,” says GQ. Like Cucinelli, category killers should identify their brand’s promise and define their own “beautiful culture” in-store.

In conclusion, given the continued growth and leverage wielded by Amazon and Walmart – along with an increased focus on owned brands – brands and consumers together, should be cheering for the rehabilitation of the remaining category killers. Re-thinking the legacy business model by defining a compelling vision with a dynamic customer experience will help companies reinvigorate their customer base and avoid being mistaken for dead.

]]>https://thenaviogroup.com/2018/05/14/the-apprehension-of-the-category-killer/feed/01312Champagne wishes and caviar dreamshttps://thenaviogroup.com/2018/05/01/champagne-wishes-and-caviar-dreams/
https://thenaviogroup.com/2018/05/01/champagne-wishes-and-caviar-dreams/#respondTue, 01 May 2018 06:06:31 +0000https://thenaviogroup.com/?p=1296How brick and mortar retailers can succeed in an era of convenience

In every market, no matter the technological gains or evolution of preferences, there are certain selling-points that hold true. For a very long-time convenience (defined as “we have a location as close to the customer as possible”) was key to any strong player in retail. Today, however, the landscape looks very different and convenience must be considered a given. In an age when operational efficiency is measured in hours rather than days, legacy retailers must find other ways to differentiate themselves.

With companies no longer able to claim convenience as their calling card, a company must deliver at least one of three core concepts:

Product innovation – delivering new and original items to the marketplace

Unparalleled customer service – associates catering to the shopper, not the store

These three elements deliver the brick and mortar advantage – a wonderful experience. Companies that rally around one of these concepts and adapt to the times, rather than bolstering the bottom line with on-trend solutions, will thrive through the current retail reformation.

To bring this idea to life, we highlight a company straying from their corporate vision and contrast it to a company evolving but sticking to what made it successful in the first place.

Innovative products: is champagne the big, new thing in luxury furniture?

RH (formally Restoration Hardware) has been in the news because of their positive performance in the last quarter of 2017. Their numbers are impressive (revenue +14% for fiscal 2017; adjusted gross profit+25.9% YoY), however, the question is where those numbers originate.

RH – West Palm Beach, FL

A key focus for the company has been their “hospitality” offering. In order to generate foot-traffic, RH offers a full service menu including truffle grilled cheese ($17), lobster rolls ($28) and even a bottle of Dom Pérignon ($314). The concept is generating interest, with the new restaurant in the West Palm Beach, Florida trending 35% higher than Chicago’s hospitality offering in its first-year. It’s now projected to attain $7M in revenue for 2018. While still a small portion of overall revenue, the hospitality offering is a strategic play for the company. Gary Friedman, the CEO, in commentary from the company’s earnings call, revealed that they will be doubling down on this approach:

“We will once again hold ourselves back from adding new businesses outside of our ongoing investments in RH Hospitality as we work to design an operating platform that aligns with and amplifies our luxury positioning”

The goal, as explained by Mr. Freidman, is to not only attract more foot traffic — while expanding their membership — but to get the right traffic into their stores.

However, the answer may be simpler than pushing into food service. It’s a solution which made RH great in the first place: excellent home product. The annual 10K, released in conjunction with the call, states in its introduction:

We have positioned RH as a lifestyle brand and design authority by offering dominant merchandise assortments. We are merchants of luxury home furnishings and our luxury products embody our design aesthetic and reflect inspiration from across the centuries and around the globe. We have developed a proprietary product development platform that is fully integrated from ideation to presentation.

Instead of venturing into rooftop bars, investments could be diverted to RH’s “proprietary product development platform”. With Millennials unquenchable thirst for technology, and as they become more dominant consumers of luxury goods (they will account for 45% of the market within 7 years), the Internet of Things (IoT) may be a good place to begin. High-end designers are moving in this direction and there’s more than enough room for a leader to emerge. By bringing innovative, design-forward back as the number one attraction, supported by great customer service (more on that in a minute), there is little doubt the right traffic will be driven to the store.

Restaurant at RH’s Chicago location

Mr. Freidman quotes Steve Jobs in his most recent open letter (featured on RH’s website) praising the legendary CEO’s “taste.” Mr. Jobs built Apple on a foundation of focused products inspired by simple, unparalleled design. As Mr. Jobs once said, “focusing is about saying no.”Perhaps the next iteration of RH’s strategy will embrace the same emphasis on product that allowed Apple to thrive in a fierce market.

Excellent customer service, now served digitally.

Since its inception in 1901, Nordstrom has centered on helping the customer find the products that make them look their best. A good deal of literature, including an entire book, has described how Nordstrom achieves this through key themes such as details matter, empower the store representative, and make shopping personal. This focus on service has been their trademark, makes them unique and 115+ years later, still successful. Little wonder, as research has shown that customer service can not only increase sales 10-15% but can also lower the cost to serve by 15-20%. When ecommerce first hit, and brick and mortar store were pronounced dead, the “new” model for excellent customer service became Zappos. In response, Nordstrom, did not abandon what made them great – in-store customer service – they chose to lean into it. The company took to the internet to highlight what made the brand different, through the most compelling marketing possible, customer stories.

Inevitably, the customer centric approach has bled into their ecommerce business as well. Examples abound of shoppers calling in with a destroyed order, late shipment or incorrect delivery and are promptly sent replacements with some even receiving a personal shopper at their door within 45 minutes.

Today, technology is paired with customer service to enhance the in-store experience. A little over two years ago, a 3D foot scanner was introduced to ensure shoppers received the right fit. Mobile checkout now eliminates time spent in line and the company is introducing augmented reality in stores to help shoppers find the right outfit.

By opening a brand new store in Manhattan, despite fears of the costly real estate, Nordstrom continues to help their customer find the look that suits them best. By mixing Nike with Valentino, they are catering to the fashion-forward, luxury shopper who lives in the area. On top of the personal shoppers that are essential to all Nordstrom shops, this location will be a hub for customer service in many different forms – same day delivery, 24/7 ecommerce pick-up, a Levi’s Tailor Shop, straight-razor shaves, augmented reality and even kiosks for express returns (scan receipt, dump the product, leave).

Nordstrom Men’s Store – Manhattan

Nordstrom has stayed true to its roots and rather than chase other means to increase revenue, they are combining what they know best – customer service – with technology to provide an unrivaled experience. While no one can predict what the future of retail will hold, a safe bet is that Nordstrom will find it and it will greet the shopper with the smile of a personal shopper.

In sum, companies undergoing transformations should leverage their core strength and adapt to the times rather than surveying the industry and adopting an approach that works for others. With convenience no longer a mark of differentiation in brick-and-mortar retail, due to Amazon, the three main avenues are creating innovative products, designing a dynamic assortment and delivering unparalleled customer service. When combined with technology, any of these three attributes can help a company edge out the competition by creating a shopping experience that cannot be replicated online.

Last week, their credit rating was dinged and is now just above a “junk rating.” EBITDA as a percent of revenue has plummeted 30.3% in the past 4 years and, despite a small bump due to Twitter rumors, the stock price is down more than 50% this past year while the S&P is up over 15% during the same period. While most analysts and observers of the retail space are not quite ready to declare the once dominant category-killer dead, the financial picture is causing distress.

It does lead to the obvious questions: what happened and how can it be fixed? We outline two central challenges and suggest two potential solutions.

Challenge: The store

Merchandising at the store embraces the “Beyond” portion of the name like never before. Today, you can find Burt’s Bees, Tylenol, Old Spice and pregnancy tests alongside the traditional categories of pots, pans and bedding. CEO Steve Temares explained his team is transforming stores to dedicate more space for “deep value” items in the hope of driving foot traffic. However, vying for that foot traffic means competing against the likes of Target, Walmart, CVS and Walgreens – giants that have significant brand loyalty and a history of dominating that space.

Clearance rack at a Bed Bath and Beyond: from Luna Bars to nail polish to spin mops

On top of that, as more items get added and in-store staff continues to be laid off (880 in Q3 2017), the number of items a single staff member must maintain grows exponentially. The pressure will invariably lead to a more disheveled look, not to mention a decline in customer service. As Neil Saunders, managing director of GlobalData Retail, explained in a recently published note:

“Too many of Bed Bath & Beyond’s stores – especially older ones – are a mess,” he wrote, saying the stores are “crammed” and “devoid of inspiration,” making them “sometimes unpleasant to shop.”

As margin pressure (due to couponing and competition) continues to grow, Temares appears to be doubling down on the current strategy. However, there is little evidence of success.

Challenge: Ecommerce

As late as last year, Bed Bath and Beyond has continued to state that a top goal is to “accelerate SKU on-boarding”. From Mr. Temares:

“We have endless aisles and our online assortment includes almost everything we carry in-store and then much, much more. We have an ongoing initiative to accelerate our SKU on-boarding process and we are currently on track to share to add more than 300,000 SKUs.”

Perhaps 5 years ago (an eternity in the digital age) was the time to play the endless aisle game – today, however, the game is over. Amazon has won with over 356 million items as of early 2017. Despite spending billions of dollars in digital and ecommerce to compete, Walmart.com only offers 4.7% (16 million) of the products that Amazon has online. If the #1 brick-and-mortar retailer in the world is soundly defeated, why is Bed Bath and Beyond attempting to compete, such as selling Ibuprofen on their website for $.99?

An ecommerce site in 2018 must be the digital manifestation of the experience that a retailer is trying to create in-store rather than a warehouse of images. For Nordstrom, it is a high-end, fashion feel and for Target, it is “cheap-chic”. While stuffing items to the [digital] ceiling may seem like the quickest way to get online sales, the digital consumer is moving on.

Nordstrom, Target and Bed Bath & Beyond’s landing pages

Suggestion: Create and communicate the mission – random acts of digital do not translate into a “digital experience”

Launched in 2015, 6 major technology investments (ranging from POS systems to analytics to supply chain) gobbled up huge portions of Bed Bath and Beyond’s CapEx spend. Now, several years later, there are no significant gains nor a clear picture of how the business was impacted. While Mr. Temares has committed the company to a “customer service transformation” project, it is not clear what that means.

Companies undergoing transformations must understand why they are doing so. Data shows that a successful transformation involves taking a step back and defining the purpose of the transformation, publicly and internally. A great example: Domino’s. When asked why the company was not doing great in 2008, their CEO, Patrick Doyle, replied on Jim Cramer’s show that “Our pizza tastes worse than the box…I’m gonna tell people.” By publicly admitting to the core problem rather than stating “slumping sales” or other euphemisms for why change was needed, the stage was set to turn things around. Since then, Domino’s has doubled their market share and their stock price has moved from $3/share in 2007 to $243/share as of April 2018. The transformation was no easy task however by calling out the foundational problem – bad pizza – everyone could rally around the solution to help realize a vision.

Bed Bath and Beyond can progress by defining why they are moving to a “customer service” focused company. By articulating why this change is needed (beyond just “foot-traffic is down”), a clear course can be charted so employees at all levels are empowered to push for change. To measure success beyond the numbers, executives should ask employees at all levels “why is a customer service transformation necessary” and “what is your role in making it happen”. The answers will paint a picture of whether change is truly taking place. While this move takes courage and guts, it is a step towards successfully turning around the company.

Suggestion: Transform the biggest asset you have – the store.

It is (for now, anyways) the one asset Amazon cannot compete with. As proven by their recent partnership with Best Buy, Amazon understands that the vast majority of retail spend still happens in a store – especially for big ticket items. Bearing that in mind, along with their 1,500+ location, Bed Bath and Beyond has the unique opportunity to go to the drawing board and fundamentally recreate what it means to go shopping for home goods. The company pioneered the superstore concept back in the 80s and reinvented themselves through their famous couponing efforts to drive store traffic. Now is the time to do so again, with the aim of infusing a digital experience into their stores to make the store experience fun and exciting again.

Become a launching pad for new brands

By focusing merchants’ time on scouting new and cool brands in the space, Bed Bath and Beyond could become the destination to find new items within his specialty market. Investments in the brands will inevitably be required however, creating a specialized and popular assortment keeps competitors at bay because Ecommerce still struggles with discoverability and showcasing items. If a retailer focuses on bringing new, popular products to market, especially a niche market, it can still be relevant and drive foot traffic. Imagine if InstaPot had been on Bed Bath and Beyond’s shelves first because a brilliant merchant found them – rather than Amazon.

Create an experience to go along with the product

With remodeling on the rise, the market for home products will continue to expand. Rather than being a transactional experience, Bed Bath and Beyond can help these DIY remodelers through education, demos and digital experiences. Another player in the market, Home Depot, consistently hosts DIY workshops, with themes ranging from “installing vinyl flooring” to “creating a windmill planted [for kids]”. Bed Bath and Beyond, through a different lens, can provide similar events to aid in decking out those new kitchens, bathrooms and bedrooms. By turning the store into something more than just a place to purchase, a trip to Bed Bath and Beyond becomes a value-add, which will ultimately result in loyalty and purchases.

In conclusion, Bed Bath and Beyond has been “transforming” for some time now however, the results suggest it may be in the wrong direction and with the wrong intentions. There is a huge opportunity for them to turn the company around by hitting pause and thinking through what it means to provide a digital experience. As innovators in the category who redefined what it meant to shop for home goods, they can recreate it again – however, this time with the shopper of the future in mind.